Hotel owners continue to lame the pandemic

The start of Covid’s vaccination in the US and Europe increased the prospect of people traveling again and triggered the actions of hotel owners and operators. But investors and analysts say orders will take years to return to pre-pandemic levels. Meanwhile, the industry faces increasing financial stress as homeowners struggle to pay their mortgage bills, salaries and other expenses.

Despite the record drop in bookings, many hotels have been able to remain open thanks to bank debt relief and temporary government assistance, such as the Payment Check Protection Program. Now, some lenders are starting to lose patience, say brokers and investors, which could lead to an increase in foreclosures and sales of problematic properties in the first half of 2021.

For hotel owners, “it’s all about survival,” said Greig Taylor, managing director of the consulting firm AlixPartners LLP.

In the short term, the slow pace of vaccinations and the persistently high number of Covid-19 infections are likely to continue to delay stocks. In a November report, S&P Global Ratings estimated that revenue per available hotel room dropped 50% in the US in 2020. The rating agency expects revenue to increase in 2021, but estimates it will still be 20% to 30% lower than in 2019. Revenues are not expected to fully recover before 2023.

Public markets are also pessimistic. Although the FTSE Nareit Equity Lodging / Resorts index rose in November after news of successful vaccine testing, it still fell 25% in 2020. The S&P 500 index rose 16% in the same period.

Business travel is a particular concern. While some analysts expect tourism to resume at an almost normal pace in the second half of 2021 in many places, cost cutting and the growing popularity of online meetings could mean that fewer corporate credit cards will be stolen from hotels in the near future. In a recent report, the accounting and consulting firm PricewaterhouseCoopers said that some business trips may never come back.

“I think the biggest change will be last-minute business travelers on the road 100 or 150 days a year,” said Michael Bellisario, senior research analyst at Robert W. Baird & Co. “Because I think they’re going to say, ‘I need to does my employer spend money on it? Can we do this over the phone? Can we do that with Zoom? ‘”

This is a problem because business travelers are usually the most profitable customers for hotels. They often book at the last minute and tend to be less concerned with costs than leisure travelers. Hotels in big cities like New York or Chicago, which depend on business travelers, will take a long time to recover from the crisis, said Bellisario.

Nayan Patel, who owns seven hotels in the Washington, DC area, including the Georgetown Inn, said his revenues were down about 80% compared to the previous year. Business travelers, previously a major source of revenue, have virtually disappeared. He said he recently closed one of his properties, the 76-room West End hotel, because the two or three bookings per night couldn’t even pay for his front desk staff, although he plans to reopen as soon as the deal grows again. “If you look at our numbers, they suck,” he said. “I don’t try to look at them every day, because it is very depressing.”

Patel expects the drought of business travel to also influence his earnings in 2021. “If you look at the DC convention center next year’s calendar, it’s practically empty,” he said. “This is a big problem.”

Thanks to the tolerance of his creditors’ debts, Patel managed to keep his properties, he said, but others were not so lucky. Although the number of foreclosures is still low, it is increasing. The debt tolerance deals negotiated in the spring are expiring, leaving many hotel owners with the choice between asking for help again or handing over the keys. Mark Schoenholtz, vice president of real estate services firm Newmark, said he expected sales in distressed hotels to rise in early 2021 as new spikes in infections lead to property closures. “This will force both homeowners and creditors to put things on the market,” he said.

Outside of the hot spots for business trips and large conference hotels, the outlook is less bleak. Millions of Americans who have been confined to their homes for most of the year are eager to travel again. Analysts say they expect an increase in bookings at popular leisure travel destinations, like Miami or San Diego, once vaccines are widely available and people feel safe.

Alan Lieberman, whose South Beach Group has 17 hotels in Miami Beach, including the Chesterfield Hotel & Suites, and one in nearby Hollywood Beach, said his properties are almost sold out for New Year’s Eve. His biggest problem now is finding workers, he said. His company laid off about 1,200 people in the spring, when it temporarily closed its hotels. Now he is struggling to persuade some of the former employees to return to their previous salaries, which he said are often not much more than what they have been receiving through increased unemployment benefits. In some cases, he said, the shortage of staff meant that managers needed to clean rooms.

Although he expects occupancy to be nearly normal until May, when the peak tourist season ends, most rooms are inexpensively priced. Its revenues will not return to pre-pandemic levels until cruise ships and conferences return, he said. Even so, he considers himself lucky to have hotels in a sunny place with a beach. “I would be out of the market in Chicago or New York,” he said.

Write to Konrad Putzier at [email protected]